Removing the impact of environment with units-invariant efficient frontier analysis: An illustrative case study with intertemporal panel data

The four-stage methodology consists of a units-invariant efficient frontier analysis followed by Tobit regression, adjustment of data, and a repeat of the efficient frontier analysis. The outlined methodology is an improvement over existing similar approaches because the playing field can be levelled by adjusting data based on input as well as output slacks for managers who may have been advantaged or disadvantaged by their environments. The accompanying case study investigates the influence of the general level of interest rates on bank efficiency using intertemporal panel data spanning 8 years and two countries. Key findings support the assertion that changes in interest rates can distort measurement of bank efficiency.